Facebook’s $50 Billion Valuation: That Sounds Reasonable, Even Cheap

2011 has begun with news that Facebook has secured a new round of funding which values the company at $50 billion.  I actually think that’s a reasonable valuation (although in another post later today or tomorrow, I’ll talk about my expectations of a social ennui in 2011, as we come to realize the fundamentally flawed approaches most brands are taking towards the notion of social engagement; yes, I know, a provocative statement).  In fact, I believe there’s still room for growth in Facebook’s valuation nor do I expect this valuation will cool the private trade in Facebook shares.  Many early commentators seem to the valuation is insanely high.  I actually engaged in a Twitter exchange with two analysts I hold in the highest esteem — Sameer Patel and Esteban Kolsky — around 2:30 this morning on this very subject.

My points:

  • Google’s market cap is nearly $200 billion.  Is Google really four times more valuable than Facebook?
  • Users now spend more time on Facebook than they do on Google, Yahoo…or any other web property.  Somewhere that’s monetizable (although that’s a post for another day soon).
  • Users are not only exchanging information about where and what they eat, social platforms are becoming an increasingly important way of discovering information, augmenting and, yes, replacing search in that regard.  (Where did you find out about this blog post?)
  • It is much easier to for a user to replace Google than it is to replace Facebook.  If you want to replace Google, you go to Bing.  Period.  You might even find the experience better.  OK, it’s a little tougher than that.  You might have to exchange tool bars, change a couple of preference settings on your computer and update a few links and passwords.  Those of you reading this blog are probably more sophisticated than most so you have a few more things to change but also the technical wherewithal to do so.  You could do it today and wouldn’t miss a thing.  I’ve even seen a few friends announce their New Year’s resolutions as going Google-free this year.  (Well, some of them said Google- and Facebook-free although ironically they made this proclamation on Facebook.)  Anyhow, you could reasonably go Google-free and have a completely adequate replacement by the end of the day.  How would you replace Facebook, however?  This assumes, of course, that you think there’s any value in a social platform, and I’m not going to try to defend against the argument that you don’t need to replace Facebook.  Facebook is so much more than a listing of who’s doing what but also categorizes my relationships (business and professional), captures activities (and serves as the log-in) to/from many third-party web sites and has otherwise become an important piece of the connective tissue.  Replacing Facebook means rebuilding your social connections, likely across multiple platforms involving multiple acts of outreach to friends on the disparate platforms.  Rebuilding your social graph is time-consuming and likely to be incomplete.  “Substitutability” is one component of the economic definition of a commodity.  Google is highly substitutable, Facebook is not.

Sameer and Esteban also suggest that Facebook is just the flavor du jour and that they’re due for a fall.  I do not believe this is an issue in the horizon over which this valuation must be justified.  Yes, in the early days of key technology platforms, we burn rapidly through a number of them before sticking on one for a variety of complex reasons, usually beyond the control of the platform owner itself.  How many search engines were your favorite/default?  I count Yahoo, Excite, Ask Jeeves and Alta Vista as past favorites before sticking on Google.  Similarly, I used several social platforms before Facebook achieved its prominent and dominant state.  500 million users gives you a pretty strong base from which to retain market leadership and even competitors are now being forced to embrace Facebook’s role in the “ownership” of the social graph (witness MySpace’s recent concession; TechCrunch has a particularly amusing take on it).

    I hasten to acknowledge that Google has done a much better job of monetizing its position and that in fact is the enduring genius of Google.  As I and others have often observed, Google may really be just a one-trick pony…but it’s a damn good trick.  Facebook is nowhere near as mature as Google when it comes to understanding, or inventing, how it’s going to monetize its commanding position.  I think, however, that represents as much a failing of brands and consumers as it does of Facebook.  Maybe if they hadn’t handle the whole Beacon initiative in such ham-handed fashion, we’d be much further along…but there’s no turning back that clock and besides, Facebook has continued to make boneheaded moves in maintaining the critical user trust although, critically, I do not believe it has even approached the status of irreparably damaging that trust.  People just haven’t abandoned the platform despite all the posturing and hand-wringing.

    Anyhow, I believe profoundly in the ability to monetize social platforms and their tremendous power in transforming the relationships between brands and customers, customers and customers and among brands themselves.  Today’s blather about “being part of the conversation” is most assuredly not the answer.  A few years from now we’ll look back on today’s efforts and laugh at just how immature, ineffective and ultimately misguided they were.  In fact, I think this will lead to a bit of what I call social ennui (that’s French for “boredom”), which I actually believe will be a dominant theme in social media in 2011.  Again, I’ll write about that today or tomorrow in my look-ahead blog piece.  For now, I’ll just leave it that a $50 billion valuation for Facebook sounds actually quite reasonable and that it’s not evidence of a bubble (although Groupon’s walking away from $6 billion may be).

    Happy 2011, friends.

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    Groupon: TFM

    Groupon has apparently turned down as much as a $6 billion acquisition offer from Google.  They’re thinking that if they grow their business out a little more, an IPO or subsequent acquisition could bring them as much as twice as much.  I have three letters for them:  TFM!!!

    What, you say, is TFM?  Some of you may remember Pointcast.  It was a darling of the very early Internet days.  In fact, it was a pre-Internet company, providing dial-up access to its information resource.  I actually was a delighted user of their screen-saver product (and still wish I had something like it).  Rumors had it that Rupert Murdoch and News Corp. had made a $450 million offer to acquire the company.  I was on the advisory board of ad-tech at that time and we had Chris Hassett, Pointcast’s CEO, on stage and asked him about the rumors.  He wouldn’t confirm them nor deny them, indicating that there was a lot of discussion about how best to maximize their value and saying that he believed it would be best maximized via an IPO.  “IPO?,” someone in the audience called out, “TFM!!”  “TFM?,” Hassett replied.  “Take the f***ing money.”

    Two-and-a-half years later, Pointcast sold the company.  For $7 million.

    Do you really believe that Groupon’s position is so unassailable and their approach so unrepeatable that there’s no risk to their future opportunity?  Would you turn down $6 billion??

    Groupon, TFM!!!

    UPDATE 1/14/2011

    It boggles my mind but maybe it was a good idea to turn down the $6 billion.  If, that is, you believe these rumors of a $15 billion IPO.  I admit to not having looked at any financial models but my sense of this valuation is that it’s totally insane.  On the one hand, you’d think that there’s some barrier to entry in this space, with the requirement to build out a local salesforce.  On the other hand, I already get at least five or six discount offer emails a day, some with a local focus (e.g., LivingSocial), some with a national focus (e.g., Woot) and some (e.g., Thrillist) which bridge the two.  And the people who do those mailers (e.g., Valpak) are getting into that business as well.

    There’s a lot of competition from entrenched players already.  There’s going to be growing competition from big players (e.g., Google, Facebook).  Pretty soon, everyone is going to be playing this game.  Is Groupon really the killer implementation?  Or are they getting out just in time?  Again, I’m no valuation expert but I think these numbers are just wild.

    UPDATE 2 1/14/2011

    Interesting take from Greylock, one of the VCs investing in Groupon.  They say two things for why they invested in Groupon:

    1. The power of data.  I’m not convinced Groupon has any inherent advantages or different slants on this subject to merit a stratospheric valuation.
    2. This is a winner-takes-most kind of market.  I see no justification for that assertion.  On any given day, I’ll peruse a few of these offers and purchase based on what’s most interesting to me, not the source which originates them.  I don’t think they have any inherent advantages in offer acquisition that make their offerings any better than anyone else’s.  There are so many local merchants that consolidation in merchant acquisition is unlikely to occur.  I can think of no example where there has been this consolidation other than maybe Craigslist and eBay, and their approaches (zillions of items) are different than Groupon’s and others’, where they offer one or several deals a day.  I think there’s room for many players and that you will actually see aggregators step in and consolidate multiple offers from multiple sources in a single email.  (Come to think of it, I should start that business.)

    Facebook Messages: Why This Could be Even Bigger than Anyone Thinks

    It’s hard to imagine that anything Facebook does, let alone something on the scale of Facebook Messages, could be underappreciated, but I believe that’s the case here.  Facebook Messages could be “the next big thing.”  I’m not prepared to anoint Messages as such, yet; I haven’t even been blessed with being one of the platform’s first users and thus haven’t had the opportunity to see if the reality is remotely in the league of the promise.  But the promise is huge.  Facebook has an enormous opportunity to capitalize on several intertwining trends.

    • Email ceased being a productivity tool a decade ago or more.  We are overwhelmed by the volume of email and have few good tools for harnessing it.  My friend and former colleague Bill Kirwin, the godfather of TCO, has spent good portions of the last few years focused on this issue alone.
    • Email has become the bearer of malicious payloads as much or more than it has been the source of valuable information.  Simply put, without email, viruses, phishing and spam are much less prevalent.
    • At the same time, a new generation of users views email as the platform of last resort.  If you ask a teenager today what they use email for (and I have a focus group of two of my own), if you really parse through the answer, they use email to communicate with old people.  The new generation uses Facebook, IM, Skype, Twitter (maybe) and texting as more immediate, personal and relevant forms of communication.  Email has been forced upon them.
    • The prominence of email has made us slaves to Outlook and the inbox.  We have the appearance of productivity without really being productive.  We have the appearance of communications without really sharing anything valuable.  We have the appearance of progress but that progress is fragile and is broken the moment the next person in the thread doesn’t click reply.
    • Email is directed to people, not communities of interest.  The maintenance of email communities (groups or mailing lists) is slow if not glacial, incomplete and organizationally driven, not user-driven.
    • As we move to increasingly mobile platforms, we need a communications system that blends both the comprehensiveness of email with the urgency of texting.  Today they co-exist uncomfortably on the device.  Unifying them is an opportunity, if not an imperative.

    For all these reasons and more, a replacement for the email platform is necessary.  It’s not like there haven’t been attempts.  Ray Ozzie spent much of his pre-Microsoft career trying to introduce new platforms (including Notes and Groove).  He was met with limited success at best and his tenure at Microsoft will not be remembered by progress on this front.  Google with great fanfare introduced Wave, only to abandon the platform, retreat and introduce Buzz, whose market impact has been approximately zero.  When Google, Microsoft and Lotus/IBM fail at something, you realize the enormity of the challenge.

    So why might Facebook succeed where these others have failed?

    • Taking a page from the Microsoft playbook, Facebook is adopting an “embrace and extend” solution to the problem.  Rather than introducing an entirely new platform and hoping to migrate its users to the new approach, over time, Facebook instead has taken the email metaphor — the installed base, if you will — and has added capabilities that bring the new forms of communication under the email umbrella.  If you’re an email user, you’ll find the approach familiar.  And if you’re a next-generation “Facebook communicator,” you’ll find the new platform is familiar and extends your capabilities in interesting ways.  If Facebook can truly blend the email world and the IM/text world to the benefit of both, this is a massive accomplishment.  I still say “if” because the requirements of the two environments don’t lend themselves obviously to a merging but if Facebook has done a good enough job here, then they are well-poised to realize the kind of success I’m positing here.  Note, “good enough” is usually the market requirement for massive success.  In fact, in a Gresham’s Law-like way (I have to leverage my college economics major every once in a while), good enough has usually been better than great in the technology space so in fact some of Messages’ shortcomings can and should be overlooked.  View someone saying “Messages, while interesting, is not as good as ‘x'” as a success indicator, not a shortcoming.
    • With over 500 million users (probably 600 million by now), Facebook is one of the rare platforms that has bridged the two user groups with their distinct communications styles.  Email is an activity of the old (get over it, friends!), texting is an activity of the young.  But Facebook is actively used by nearly half of all Americans (and even greater percentages of people in other countries).  This gives them a bully pulpit from which to reach both categories with neutral footing.
    • Facebook itself has been responsible for a change in the way we communicate.  No, they didn’t invent the status update but they’ve certainly been the largest beneficiary of it and have evolved it in meaningful ways.  And this is not just a consumer-driven phenomenon.  Hardly a day goes by when I don’t have a conversation about what I’d loosely call “Facebook for the enterprise.”  They’ve already evolved the way we communicate which gives them a great opportunity to continue to evolve it while subsuming existing forms of communications.
    • It’s frequently the case in the technology industry that a successful platform follows a platform that failed by overreaching.  Windows 3.x was a step back from OS/2.  The Internet was actually a step back from many more specialized platforms that sought to do so much more than “just” hyperlink.  Thus, Messages, following a litany of failed “groupware” approaches and major platform initiatives (Sharepoint, Wave) has the requisite market conditioning and, perhaps this time, the market timing.  (I don’t want to hear from you that Sharepoint isn’t a failed platform.  It has certainly achieved some degree of ubiquity but that’s more a testament to Microsoft’s tenacity and doesn’t really reflect its market impact or certainly its leadership.)
    • It’s the subject for another upcoming blog post but I don’t think social capabilities have been understood and embraced nearly as much as they’re going to be.  “Social” is more than status updates and tweets.  It transforms application categories and the way users relate to each other, and the communities, companies, suppliers and friends with whom they interact.  Adding social capabilities to the communication platform in a fundamental way is going to happen, and Facebook has as good a vision as anyone and is better-positioned than anyone to make that happen.

    For all these reasons, I’m excited by Facebook Messages.  We need a new platform that blends the urgency of texting and IM with the familiarity and functionality of email.  Messages is the leading contender to do just that.  Can they fail?  They certainly have ample opportunity, and track record to do that.  Their last attempt at a “game changer” — Beacon — didn’t end well.  Because I correctly identified Twitter in a February 2008 research note (“Twitter:  The Most Important Platform You’ve Never Heard Of), I’m often asked “what’s the next big thing.”  Wave, no.  Foursquare, no.  FriendFeed, no.  We don’t have one of these a year.  Messages?  I’m not prepared to declare it “the next big thing,” but it’s the first thing in years that I think has that potential.

    Technology Change: Slower than I Think but Faster than You Think

    Last week, I gave a presentation to a “traditional” publisher on the impact of new technologies on their business.  This is someone who has a very successful and profitable “dead trees” business and my mandate was to come in and challenge their thinking with regards to the impact of technology on their business.  Their managers feel no sense of urgency to do anything about new technology now because the existing business continues to thrive and despite the prognostications of industry pundits, they have yet to feel an impact on their current business and thus are in no rush to actually invest in new approaches (even while it’s fun to think and talk about them).

    This caused me to reflect on the technological change I have seen in my lifetime.  I have spent 31 years focused on “disruptive technologies.”  I started working on PCs in 1979 — two years before IBM launched its PC — and I’ve witnessed some amazing technological change in those 31 years.  As an observer of, and advocate for, those changes, I’ve come to an interesting and important realization.  As optimistic as I am about the pace and depth of technological change, I’m usually over-optimistic about the time frames in which it happens.  This was the case in the early Internet days and I believe is once again the case with regards to a new set of disruptive technologies.

    While I was never a wild-eyed proponent of Pets.com or Webvan, I am certainly guilty of feeding into the hype that led to their elevation.

    So, we technology pundits are overly optimistic.  No big news there.  However, there is big news:  while we may be overly optimistic in the short-term, we’re actually overly conservative in the medium-term!  Ten years ago, the Internet bubble was about to burst.  All those wildly optimistic claims about how the Internet was about to change everything were going to be laid to waste.  Yet here we are, ten years later, and the truth is that the Internet has changed everything.  It has reached a point where, if you lose your Internet connection at work, you just go home or go somewhere where you can get that Internet connection because without it, well, you just can’t do your job.  And it’s not much different at home.  When I lose my cable TV connection, well, there are lots of other ways to entertain myself and, short of a major sporting event (on the level of the World Series), I feel no obligation to leave the house.  Lose my Internet connection?  I may wait around an hour to see if it comes back but anything longer than that and I’m contemplating a run to Starbucks or Borders or somewhere else where I can grab a Wifi connection.

    The truth is that the Internet revolution is more profound than even we wild-eyed optimists thought it might be a decade ago.  We had the timing wrong but, even more significantly, we had the impact wrong, and weren’t wild-eyed enough.  And guess what?  We’re doing it again.  And this time again, it is going to happen more quickly than you think…and more quickly than the Internet took.

    So, what is “it”?  Regular followers know that I have been talking about the “perfect storm” of disruptive technologies — social, mobile and cloud — for over three years now.  My premise is that each of these, while an interesting phenomenon in their own right, actually serve to amplify each other such that the overall market impact is greater than if any one of these phenomena were occurring in isolation.  That amplification effect is one reason why I think that the medium-term impacts of these technologies tend to get understated.

    There are two other unique characteristics of these new technologies that I think will cause their impact to be so significant more quickly:

    • Pace of change
    • Economics

    With regards to pace of change, the fact that we’re heavily Internet-connected enables us to embrace new capabilities much more quickly.  In the early Internet days, we were faced with the daunting challenge of upgrading connectivity models from dial-up to broadband and to deploying new software (the browser) on a large number of machines.  Having done that now, we’re in a position to embrace new Internet models of distribution (e.g., cloud computing) with very little friction.

    Mobile also has some radically different market dynamics than the desktop that enables, and leads to, a faster pace of change.  First of all, we’re embracing the mobile Internet even faster than we did the desktop Internet, as famously called out in a Morgan Stanly report.  In fact, they project that the number of mobile Internet users will pass the number of desktop users in the next 3-4 years.  The dynamics of the mobile market are also very different than those of the desktop, enabling more rapid change.  First of all, this is a much larger market.  Cell phones of all kinds (not just Smartphones) are shipping approximately 1 billion units per year, or about 4x that of the desktop market.  These will rapidly shift to Smartphones across the entirety of the market as prices plummet (in Moore’s Law fashion).  Even more striking, the average lifespan of a desktop or laptop computer is in the 3-5 years range whereas the average lifespan of a mobile device is 21 months.  That means we are changing over the installed base of a multi-billion unit market every two years or so.  There is very little installed base drag in the mobile marketplace!  And this perhaps understates the pace of change.  Granted, we’re in a period of software immaturity but the leading mobile software platform providers (e.g., Apple, Google, RIM) are upgrading their software platforms with significant new capabilities (both software and form factor) every 3-6 months.  That contrasts sharply with the desktop, where software advances are measured in 3-7 year cycles and are often met with significant market resistance because of the cost and disruption of upgrades.

    Bigger market, faster turnover, greater pace of change.  Yes, the impact is going to be felt faster than you think.

    Economics are also contributing to a faster-than-you-think impact of new technologies.  I refer particularly here to the impact of cloud computing.  In the past, for businesses to embrace this kind of technological change would have required massive capital investments on their part to deploy infrastructure to exploit the new platforms.  Cloud computing now enables companies to embrace new technologies in a much more flexible fashion, requiring little to no capital investment and as a result, much faster and more scalable implementations.

    I don’t want to get into an argument here about cloud computing.  That’s a discussion for another day.  Security?  Red herring.  In fact, I posit that over time you’ll find cloud computing solutions will have better security than on-premises solutions because the cloud computing providers have greater incentive to provide that security.  I have come across many CIOs who have an immediate negative reaction to the cloud.  I’ll ask them “if you were starting a business today…” and usually before I can complete the question, they’ll go “well, of course then I wouldn’t own infrastructure.”  The question therefore isn’t whether or not to do cloud but rather how and when.  But I digress.

    Bottom line, the flexible economics of cloud computing enable a more rapid embrace of new technologies than would be the case if companies had to make massive capital investments to support new software platforms like social and mobile.

    It’s easy to ignore we proponents of massive technological upheaval in the early days.  Yes, we’re probably overstating how impactful these technologies will be in 2010 and maybe even 2011.  However, ignore our forecasts for 2012 and beyond at your own peril.  And if you wait until then to start embracing the change, you will find the pace of the market change then to be so fast that you’re unable to keep up, let alone catch up.  My advice to that publisher was this is absolutely the best time to be embracing technological change, while you’ve still got a successful business to fund that change.  If you wait until your existing businesses start to feel the impact from technological upstarts, you might find yourself in a very uncomfortable position, akin to the way Barnes & Noble and Borders feel about Amazon.  It’s not inconceivable that one or both of them will be out of business within a year.  They didn’t feel the urgency to get involved early — and probably saw the demise of Pets.com as validating their thinking — but when things happened faster than they thought, they had already lost the innovation edge and, more importantly, the customer.

    We overstated the timing but understated the impact before.  I think we’re doing it again, and this time the change is going to be even greater, and so should your urgency.

    The Twitter Generation: Coping with Information Overload

    People look at Twitter, Facebook and other social media and often observe “oh great, just what I need.  More distractions.”  Perhaps now more than ever, my learnings of over 20 years as an analyst are broadly useful.  As an analyst, I’ve been trained to look at the world through the lens of input, process and output.  You have to allocate your time among those three and also make sure that each is managed, typically in different fashions.

    Input

    In the good old days of “information is power,” we had a finite number of inputs, often giving us an incomplete picture of the situation.  Today, we still may have holes in the input but the bigger issue now is information overload, too much input.  Still, we must do two things.  First, make sure that among that choices of inputs that we have that we choose a balanced set of inputs to give the broadest possible picture.  Too many people on Twitter, for instance, follow people “just like them,” giving an echo chamber kind of effect.  Their thinking gets ratified because the only inputs they choose to select are those that confirm their position.  Bad situation in which to find yourself.  At the same time, it’s all too easy to conclude that because of the volume of inputs you’re receiving that you somehow must be seeing everything you need to see.  False.  It’s every bit as critical in this “too much information” world to identify the underlaps in your information flow as if you were in a “too little information” world.  So many post-disaster analyses demonstrate that the information to realize we were making a mistake existed, just that it hadn’t crossed the relevant person’s radar screen.  The old saying still applies:  “if you don’t know what you don’t know, you don’t know enough.”

    Process

    In the “good old days,” we’d actually spend time thinking about or debating things.  In today’s world, process consists of clicking “like” on Facebook or retweeting on Twitter.  Perhaps with the volume of data today, it’s easier to identify trends but then again, extrapolating straight line conditions was never a terribly valuable skill to possess.  In a data-rich world, every bit as much as in a data-poor one, identifying the non-intuitive conclusions is the real value contribution.  I suppose there’s a place in the world for the Scobles and Kawasakis – the broadcast media of social networks – but the real value I’ve found always comes from those who apply selection, judgment and insight to the data, not merely rebroadcast it.  This is one of the values of the Internet OldTimers Foundation network to me; my OT time is usually thought-provoking and insight-focused.  There is very little of the “see this, pass it on” and much more of the “so what does this really mean?”  And perhaps the biggest insight I’ve gathered over the years from focusing on process is to look for proof you’re wrong.  If you look for proof you’re right, you’ll almost always find it…even when everyone else long ago concluded you were wrong.  If on the other hand, you give your search for your errors a true and honest effort, only in the absence of information negating your position might you begin to feel comfortable in your correctness…subject of course to a full range of inputs as outlined above.  This search for wrongness makes me sometimes a difficult person to work (or live) with – I’m the one who, when everyone else is rushing to agree, stops to see what we’re missing.  On the other hand, that makes me a great consultant; I’ll see what those of you too close to the matter (whose inputs are biased in one direction) might miss.

    Output

    At the end of the day, what you do with your inputs and processes is what really matters.  Mental masturbation is a wonderful game in which to participate but if your inputs and processes don’t lead to substantive behavioral changes, it wasn’t necessarily time well spent.  Don’t spend a lot of time in maintenance of the status quo.  Instead, look for those outputs that call for a behavioral change.  That’s where you get the real return on your investments of time above.

    It’s real easy to lose track and get caught up in one of the above steps – the information junkie, the debater or the presenter.  I find great personal value in being aware of these processes and biases and actively managing them.

    Inauguration Day

    It almost seems trivial to note this on a day otherwise marked my tremendous symbolism and pomp but we now have our first technologically-savvy President.  From his attachment to his Blackberry to the campaign’s dramatic and powerful uses of social networking, this is the very first time the country has been led by someone who understands, embraces and even demands technology utilization.

    As far back as 1984, when I was working at General Instrument, I learned the power of a chief executive who understood the power of technology.  GI in those days had an email system, linking facilities around the world.  However, its utilization was spotty.  There were a not-inconsiderable number of tech junkies — this was a technology company, after all — who loved the immediacy that email offered.  There was, however, a much larger population of people involved in manufacturing and operations, disciplines that had largely been untouched by technology back in those days.  The higher up in the organization you went, the less likely they were to use the email system.  The net result was that for reliable communications, to update the “systems of record,” you had to use “traditional” forms of communications.  Fortunately, however, GI was led by a CEO (Frank Hickey) who understood the potential of electronic communications.  He decreed that certain of his key reports be submitted to him electronically.  As you might imagine, the trickle-down was almost immediate and within a matter of months, the number of users on the email system had grown several orders of magnitude and the number of messages grew even more so.  Being in charge of the PC implementation as I was, the number of PCs in the company grew in a year from under 100 to over 1,000.

    Clearly, there is power in a chief executive who understands, and demands, the use of technology.  Already this morning, I’ve seen stories on TV about how Obama is still fighting to retain his Blackberry and how his transition team has had to rely on Gmail prior to their .gov email addresses going live.  I hope this means that, much as my experience at GI, the country experiences a significant trickle-down effect, where we more effectively utilize technology to effectively communicate.  We have just scratched the surface of how social technologies are going to change the way we live and work.  I am optimistic that under our new President, we will embrace those changes in some profound ways not capable had another man been elected.

    Tomorrow, the reality of the economy and my personal situation may temper my enthusiasm (just a little), but for today, I’m hugely excited about the future and what this Presidency means for technology, business and people.

    What We Can Learn from Circuit City

    With the announcement today that Circuit City has been unable to find a buyer and is therefore going to be forced to close its remaining stores, lost in their demise could be one of social media’s more significant lessons.  E-commerce is a sufficiently small piece of their business that no amount of success as an e-tailer would compensate for their shortcomings as a retailer in this gruesome economy, but don’t throw out the baby with the bathwater.

    Circuit City was one of the early retailers to make what at the time was a highly controversial decision.  These retailers make big bets on inventory, stocking large volumes of products that they think are going to be successful and even going so far as to strike preferential deals with manufacturers to secure allotments of hot products.  Given these bets, you would imagine that it would be highly controversial to open up their corridors to dissenting opinions.  However, Circuit City was one of the relatively early brick-and-mortar retailers to host user opinions.

    And what did Circuit City discover?  They found that people who read user opinions on their site were 2-5x more likely to purchase than those who didn’t read the user opinions.  Of course, this is a complicated equation that raises all sorts of cause-and-effect questions.  It isn’t a simple matter of getting people to read user opinions.  Those who read such opinions are probably already more inclined to purchase.  Whatever the relationship, however, Circuit City experimented with and capitalized upon the power of their user community to their benefit.

    No, it wasn’t enough to save the chain but in these tough times, when retailers are questioning whether the hassle of user-generated content is worth the outcomes, it’s worth remembering the outcomes Circuit City produced.  Those would put their heads in the sand, pretending that if they don’t support engagement with their users and  buyers that it somehow doesn’t exist, are only kidding themselves.  If we all haven’t figured out the ultimate power of social networking and how to harness it in the advertising and selling cycle, early pioneers have already demonstrated that there are tangible returns to be achieved.  Let this perhaps be Circuit City’s lasting legacy.